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Last close As at 24/03/2023
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Market capitalisation
EUR643m
Research: Investment Companies
Princess Private Equity (PEY) reported a c 21% NAV TR from January to end-October 2021 driven by exits (most notably GlobalLogic in Q121) and revaluations of existing portfolio holdings. PEY’s realisations outpaced new private equity investments in the period, which has led to an increase in net current assets. That said, PEY has temporarily allocated part of them in senior loans to mitigate the risk of cash drag and announced several new direct private equity investments that are still in the closure period. PEY’s investment manager is confident in its investment pipeline and expects PEY to be close to fully invested in H222.
Princess Private Equity Holding |
Redeploying funds after strong realisations |
Investment trusts |
26 November 2021 |
Analyst
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Princess Private Equity (PEY) reported a c 21% NAV TR from January to end-October 2021 driven by exits (most notably GlobalLogic in Q121) and revaluations of existing portfolio holdings. PEY’s realisations outpaced new private equity investments in the period, which has led to an increase in net current assets. That said, PEY has temporarily allocated part of them in senior loans to mitigate the risk of cash drag and announced several new direct private equity investments that are still in the closure period. PEY’s investment manager is confident in its investment pipeline and expects PEY to be close to fully invested in H222.
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Record high realisations in 2021 to end-October 2021 |
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Source: Refinitiv. Note: Net liquidity calculated as net current assets to NAV. *Includes realisations and investments completed to end-October 2021. |
Why consider PEY now?
The manager’s focus remains on the prudent selection of new investments aligned with secular transformative growth themes (eg digitalisation, ageing society/health awareness, automation and sustainability). Moreover, it aims to create defensiveness in PEY’s holdings through a focus on resilient growth rather than simply buying defensive companies. This results in PEY’s high exposure to businesses in the technology, education and healthcare sectors. Average last 12-months (LTM) EBITDA growth across its major holdings (c 60% of its NAV) was a strong 28% at end-September 2021 (versus c 16% LTM to end-Q221) after some of its holdings returned to a pre-pandemic level of activity (in the consumer sector in particular).
The analyst’s view
Following a period of strong realisations, PEY has significant dry powder and its investment manager expects further realisations from PEY’s mature portfolio in the coming quarters. Having said that, the investment manager has a rich near-term (c six-month) pipeline of new investment opportunities: 37 deals with a total volume of c US$20bn, including 12 live investment opportunities in services, 10 in goods and products, eight in technology and seven in the health and life sectors. Meanwhile, given that PEY will remain selective in its new investments, it has decided temporarily to invest part of its excess liquidity in a diversified portfolio of senior loans (c 13% of NAV at present, according to management), which offer a c 4.2% yield.
Strong NAV TR of c 20% in 9M21
PEY’s net asset value (NAV) total return (TR) was 19.8% in the first nine months of 2021 (9M21), attributable, most notably, to a €48m uplift on the exit from GlobalLogic in Q121 (see our last review note for more details). In Q321 alone, PEY posted an NAV TR of c 2.6%, with its NAV up by c €27m, supported in particular by the revaluation of KinderCare (+€13m or c 26%) and Form (+€7m or c 28%). The revaluation of KinderCare (4.6% of PEY’s NAV at end-September 2021) results from the improving outlook for early childhood education in the United States, which has broadly returned to a pre-pandemic state recently. Form, a global manufacturer of customised, small, highly engineered metal components, has benefited from the recent economic recovery, in particular in the automotive and oil & gas sectors. The revaluation of KinderCare and Form follows write-downs of these holdings after the pandemic outbreak by c €6.6m between end-FY19 and end-Q221 for the former and €8.3m for the latter over the same period. Of PEY’s 10 largest portfolio holdings, only Foncia and Fermaca contributed negatively to PEY’s NAV growth in Q321, although their impact on NAV TR was small (c €4m or c 8% of the previous carrying value and c €2m or c 7%, respectively).
The LTM EV/EBITDA ratio of 15.4x at end-Q321 (based on a sample of 45 companies, representing c 66% of its NAV) was only slightly down versus 15.7x at end-FY20 and end-Q221. PEY’s portfolio companies continue to deliver solid operating performance, with average LTM revenue growth of c 16% to end-Q321 (versus c 7% LTM to end-Q221), an EBITDA rise of c 28% over the same period (c 16%) and EBITDA margin of c 19% at end-Q321 (versus c 21% at end-FY20). Having said that, management highlights that sales and EBITDA growth in the period was from a relatively low base in some cases, affected by disruptions during the pandemic, in the consumer sector in particular.
PEY’s NAV TR was c 21% in 2021 to end-October 2021, compared with c 26% for the MSCI World Index and c 31% for the private equity index LPX Europe NAV. Over a three- and five-year period, PEY delivered an NAV TR of c 17% pa and c 14% pa respectively, in line with the MSCI World Index and compared to c 14% in both periods for the LPX Europe NAV Index.
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Exhibit 1: PEY’s performance to 31 October 2021 |
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Price, NAV and index total return performance, three-year rebased |
Price, NAV and index total return performance (%) |
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Source: Refinitiv, Edison Investment Research. Note: Three-, five- and 10-year performance figures annualised. |
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PEY’s shares are trading at a discount to NAV of c 13% at 24 November 2021, only slightly higher than c 11% over the three years to end-February 2020 (pre-COVID-19 pandemic). Its discount to NAV is in line with the peer group average at 24 November 2021 (see Exhibit 3 and related comments below).
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Exhibit 2: Share price discount to NAV over five years (%) |
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Source: Refinitiv, Edison Investment Research |
Offering an attractive dividend yield
In October 2021, PEY declared its second interim dividend for FY21 of €0.335 per share (payable in December 2021). Consequently, the 2021 total dividend stands at €0.67 per share, in line with its guidance to distribute 5% of opening NAV for each financial year via semi-annual payments. This implies a yield of 4.6% compared to 2.4% on average for its peers. While PEY’s one-, three- and five-year NAV TR to end-October 2021 is somewhat below the peer group averages, its three- and five-year performances are broadly in line with the MSCI World Index and the private equity index LPX Europe NAV. PEY is trading at a similar discount to NAV as its peers. Two companies from PEY’s peer group are trading at a premium to NAV, including HgCapital Trust (which we believe is a function of its tech-focused portfolio) and Deutsche Beteiligungs (reflecting its asset management segment generating regular fee income).
Exhibit 3: Listed private equity investment companies peer group, at 24 November 2021* in sterling terms
% unless stated |
Country focus |
Market cap (£m) |
NAV TR 1 year |
NAV TR 3 years |
NAV TR 5 years |
Latest discount |
Ongoing Charge |
Perform. Fee |
Net gearing |
Dividend yield (%) |
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Princess Private Equity |
Global |
796.2 |
20.2 |
50.3 |
83.8 |
(13.1) |
1.9 |
Yes |
100 |
4.6 |
|
Apax Global Alpha |
Global |
1,119.7 |
37.6 |
76.0 |
96.0 |
(12.0) |
1.5 |
Yes |
100 |
4.9 |
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BMO Private Equity Trust |
Global |
347.9 |
48.7 |
73.2 |
111.6 |
(14.8) |
1.3 |
Yes |
112 |
3.7 |
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Deutsche Beteiligungs |
Europe |
621.0 |
32.9 |
24.4 |
85.0 |
14.9 |
0.3** |
No |
100 |
2.0 |
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HarbourVest Global Priv Equity |
Global |
2,152.2 |
45.3 |
82.0 |
124.5 |
(16.6) |
1.3 |
Yes |
100 |
0.0 |
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HgCapital Trust |
UK |
1,875.3 |
40.4 |
113.0 |
193.0 |
1.4 |
1.6 |
Yes |
100 |
1.2 |
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ICG Enterprise Trust |
UK |
877.1 |
37.5 |
57.2 |
111.3 |
(16.0) |
1.5 |
Yes |
100 |
2.0 |
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NB Private Equity Partners |
Global |
846.5 |
48.8 |
72.4 |
110.6 |
(18.5) |
2.2 |
Yes |
108 |
2.9 |
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Oakley Capital Investments |
Europe |
685.8 |
25.6 |
77.0 |
117.4 |
(13.7) |
2.5 |
Yes |
100 |
1.2 |
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Pantheon International |
Global |
1,793.3 |
31.0 |
51.3 |
89.2 |
(15.8) |
1.2 |
Yes |
100 |
0.0 |
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Standard Life Private Equity Trust |
Europe |
796.4 |
36.7 |
62.0 |
100.4 |
(15.5) |
1.1 |
No |
100 |
2.6 |
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Symphony International |
APAC |
175.0 |
17.2 |
-11.8 |
-25.2 |
(44.3) |
3.0 |
No |
101 |
5.4 |
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Peer group average |
1,026.4 |
36.5 |
61.5 |
101.3 |
(13.7) |
1.7*** |
102 |
2.4 |
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PEY rank in group (12 funds) |
8 |
11 |
10 |
11 |
4 |
4 |
5 |
3 |
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Source: Morningstar, Refinitiv, Edison Investment Research. Note: *12-month performance based on latest available ex-par NAV (end-October for Princess Private Equity, NBPE, HarbourVest Global Private Equity, Pantheon International and Standard Life Private Equity; end-September for Apax Global Alpha and HgCapital Trust; end-July for ICG Enterprise Trust; end-June for BMO Private Equity Trust, Deutsche Beteiligungs, Oakley Capital and Symphony International). **Calculated as opex less fee income divided by total AuM. ***Excluding DBAG. TR: total return. All returns expressed in sterling terms.
Record high realisations in 9M21
Realisations reached a record-high c €394m in 2021 to end-October 2021 (versus c €178m in 2020 and €158m on average between FY16 and FY20), driven largely by the partial exit from International School Partnerships (ISP, €121m) as well as the full exits from GlobalLogic (€108m) and Cerba HealthCare (€27m). We described these transactions in more detail in our previous review note. The investment manager has signed and has been closing the exits we list in Exhibit 4. Management highlights that its portfolio is mature (c 80% of its holdings had a vintage of 2018 or earlier at end-September 2021, the last available data) and it expects high activity both in terms of new investments and realisations in the near term. We note that KinderCare Education, America’s largest private provider of early childhood education and childcare services by centre capacity, announced its plans to go public in November 2021, but recently decided to postpone its listing plans indefinitely, citing regulatory delays.
Exhibit 4: Realisations announced and not yet completed
Announcement date |
Company |
Description |
Type |
Last carrying amount (local ccy m) |
Valuation of PEY's stake implied by the transaction (local ccy m) |
Uplift to last carrying amount |
August 2021 |
Hortifruti |
Brazil's largest fresh food retail chain |
Full |
BRL60.6 |
BRL67.0 |
11% |
October 2021 |
Foncia |
Provider of property management services |
Partial |
€52.4 |
€48.9 |
(7%) |
November 2021 |
Pacific Bells |
Leading franchisee of the Taco Bell brand in the US |
Full |
US$18.4 |
US$18.6 |
1% |
Source: Princess Private Equity, Edison Investment Research
Temporary cash allocation and new direct investments
Meanwhile, PEY has been gradually deploying funds into new and existing portfolio holdings. Its investments totalled c €253m in 2021 to end-October 2021. However, this amount comprises a €135m fund investment in a portfolio of senior loans (including €75m invested in August 2021 and €60m in October 2021), which represent c 13% of PEY’s NAV currently (ie including realisation and investments in October 2021), according to management. Management highlights this is only a temporary allocation aimed at reducing the cash drag, and the capital will be gradually redeployed in direct private equity investments. The portfolio of senior loans includes c 400 loans (primarily first lien and floating rate) and currently offers a c 4.2% yield, according to management. PEY deployed funds into several direct portfolio holdings, which we describe in Exhibit 5.
Management expects investment activity to increase in coming months and PEY to become close to fully invested in H222. Its near-term pipeline (c six months) comprises 37 live investment opportunities with a volume of c US$20bn, including 14 in Europe (with total volume of c US$10bn), 14 in Asia-Pacific (US$4.7bn) and nine in the United States (US$6.3bn). PEY’s focus remains on resilient businesses from the services (12 live investment opportunities), goods and products (10), technology (eight) and health and life (seven) sectors.
Exhibit 5: Major investments in Q321 and post quarter end
Investment date |
Company |
Investment type |
Amount (€m) |
Description |
July 2021 |
International Schools Partnership |
Re-investment |
13.3 |
International private schools group |
August 2021 |
Apex Logistics |
New |
7.7 |
Globally integrated logistics solutions provider |
August 2021 |
Reedy |
New |
6.6 |
Provider of commercial heating, ventilation and air conditioning services |
August and October 2021 |
Senior loans |
New |
135** |
Temporary investment in floating rate senior loans for liquidity management purposes |
October 2021 |
BluSky Restoration Contractors |
New |
9.4 |
US provider of restoration services for commercial, industrial, healthcare and multifamily real estate |
July 2021* |
Pharmathen |
New |
not disclosed |
European pharmaceutical company |
October 2021* |
Breitling |
New |
not disclosed |
Swiss watchmaker |
August 2021* |
Atria Convergence Technologies (ACT) |
New |
not disclosed |
India's largest provider of high-speed fibre-optic broadband |
October 2021* |
Foncia |
Re-investment |
not disclosed |
European provider of property management services |
Source: Princess Private Equity. Note: *Transactions signed and in closing. **Including €75m in August 2021 and €60m in October 2021.
Strong balance sheet to assist new investments and dividends
PEY’s investment plans and dividend policy should be supported by the robust balance sheet position. In Q321, it fully repaid its €80m credit line from the proceeds from realisations, and the credit line remained undrawn at end-October 2021. Following strong realisation activity in 9M21 coupled with investments in senior loans and private equity holdings, net current assets reached c €70m at end-October 2021 and unfunded commitments stood at c €124m. We note the company expected that only c €77m of its end-September 2021 commitments (c €121m) will be called over the next three years, with the remaining balance attributable to mature funds and not anticipated to be called in full. Consequently, PEY’s coverage ratio (calculated as the sum of net current assets and undrawn credit facility divided by unfunded commitments) increased to 121% from c 28% at end-June 2021 and 94% at end-December 2020.
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Investment Companies
Investment Companies
Research: Consumer
Britvic’s recovery continued in H2, with continued growth in at-home channels while out-of-home rebounded. GB and Brazil both posted revenue growth, while Other International was affected by weaker performance in France, caused – among other things – by poor summer weather. Organic revenue growth was 6.6%, while adjusted EBIT was up 10% on the same basis. Adjusted EPS was up 2.5% to 44.3p, as it was adversely affected by a one-off deferred tax charge. The dividend per share is 24.2p, up 12%. Current trading is encouraging, with volumes in the first six weeks of the year ahead of both FY21 and FY20. Management remains confident in making further progress with revenue, profit and margin growth in 2022 despite inflationary cost pressures.
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